Banking reporter

THE dollar has surged despite the Reserve Bank cutting official interest rates to record lows and telling global investors it thinks they have overvalued the currency.

Governor Glenn Stevens singled out the high exchange rate as a constraint on the economy when he announced Tuesday's cut in the cash rate to 3 per cent, equal to the low-point reached during the global financial crisis in 2009.

After 1.75 percentage points in cuts since November last year, the cash rate is now also at its lowest level since the Reserve began publishing its interest rate target in 1990.

Early today, the currency was trading at $US1.0474, up from $US1.0438 late yesterday.

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But despite this decrease in the return offered to foreign investors, Australia's currency is higher than it was this time last year.

Mr Stevens repeated previous comments that the dollar was ''higher than might have been expected'', but the currency rose more than a quarter of a US cent to as high as $US1.0455 in the minutes after the decision.

The surprise jump in the dollar came because some investors had expected a larger 50 basis point move and Mr Stevens had failed to give the market a clear signal about whether further cuts were planned, analysts said.

Westpac's chief currency strategist, Robert Rennie, said the lack of a stronger comment on the dollar - which has stayed strong in the face of weakening export prices - had also confused some.

''I think the market was expecting to see increasing concern about the strength of the currency rather than just 'the usual','' Mr Rennie said.

The interest rates strategist at ANZ Bank, Tony Morriss, said even after the latest cut, the returns on offer to foreigners remained attractive.

''Even at 3 per cent, Australia is still quite high compared with the rest of the world,'' Mr Morriss said.

The Reserve's statement also gave few new clues on its outlook for the economy over the coming months, which are likely to be impacted by the uncertainty surrounding critical negotiations over the looming ''fiscal cliff'' in the US.

After recent signs of a sharp slowdown in mining investment, it said the peak in the resources investment boom was approaching and there would be ''scope'' for other parts of the economy to strengthen.

Economists interpreted the statement as ''neutral'', but many are pencilling in further interest rates cuts in the new year, when the mining investment boom is expected to peak.

Deutsche Bank's chief economist, Adam Boyton, predicted the cash rate would fall to 2.5 per cent by the middle of next year.

Even though Australia had avoided the worst of the global financial crisis, he said this was also true of Canada, New Zealand, and Norway, which have cut their interest rates to 1 per cent, 2.5 per cent and 1.5 per cent, respectively.

Financial markets were last night betting there was a 50-50 chance of another 0.25 percentage point rate cut when the Reserve's board next meets in February.

But HSBC's chief economist, Paul Bloxham, said there were unlikely to be more cuts, thanks to recent signs of improvement in China and recovery in parts of the economy that were sensitive to interest rates, such as housing. In a sign that inflation also remains on the Reserve's radar, Mr Stevens said a lift in productivity and moderate wage growth would be needed to keep price rises in check.

Mr Bloxham, a former Reserve economist, said inflation could pose a challenge to further cuts, as the effect of the high currency on price changes had waned.